E55: Valuing crypto projects, Rivian worth $100B+, inflation: causes and corrections and more

1. 0:00 – 4:43

   Bestie intro and Solana Breakpoint talk

   1. CPChamath Palihapitiya0:00

      Sax is old. (singing) Sax is old. (singing) Sax is old. (singing)

   2. JCJason Calacanis0:06

      Really (censored) ?

   3. CPChamath Palihapitiya0:06

      An old? (singing)

   4. JCJason Calacanis0:07

      This is almost dead.

   5. CPChamath Palihapitiya0:09

      Sax is old. (singing) J Cal's fat. (singing) J Cal's fat. (singing) J Cal's fat. (singing)

   6. JCJason Calacanis0:15

      Not fat anymore.

   7. CPChamath Palihapitiya0:16

      Oh, my God.

   8. JCJason Calacanis0:16

      He's getting the cannons back.

   9. CPChamath Palihapitiya0:18

      (singing) Freedberg's not human. (singing) He's a robot. (singing) (laughs) He's a robot. (singing) He's a robot. Got Asperger's. (singing) He's a robot.

   10. DSDavid Sacks0:30

       Don't quit your day job, Chamath, that's all I can say.

   11. CPChamath Palihapitiya0:33

       Bro, you don't remember Baby Shark?

   12. JCJason Calacanis0:35

       I mean, how many ... No, he doesn't know his kids' first names or birthdays. How does he know Baby Shark?

   13. NANarrator0:40

       Don't let your winner slide.

   14. CPChamath Palihapitiya0:43

       Rain Man, David Sachs.

   15. NANarrator0:45

       I'm going all in.

   16. DFDavid Friedberg0:47

       And I said-

   17. NANarrator0:48

       We open sourced it to the fans and they've just gone crazy with it.

   18. CPChamath Palihapitiya0:51

       WSI.

   19. NANarrator0:52

       The Queen of Quinoa. I'm going all in.

   20. JCJason Calacanis0:55

       Hey, everybody. Welcome to Episode 55 of The All In Podcast. With us again this week, The Dictator himself, Chamath Palihapitiya, The Queen of Quinoa, David Friedberg, and coming back from Portugal and the Solana Conference, riding his-

   21. CPChamath Palihapitiya1:14

       Where heroin and prostitution are legal, David Sachs.

   22. JCJason Calacanis1:17

       Well, we were gonna, we were gonna double click on that, but you jumped the gun here on the docket. So, David, how was the heroin in Portugal?

   23. DSDavid Sacks1:25

       Great.

   24. CPChamath Palihapitiya1:26

       (laughs)

   25. JCJason Calacanis1:26

       (laughs) Great, okay. You're having fun.

   26. DSDavid Sacks1:28

       I was, I was fully drinking the Kool-Aid at the Solana Conference. It wasn't heroin, it was Kool-Aid.

   27. JCJason Calacanis1:33

       It was k- (laughs) It was literally (laughs) Kool-Aid. How many people were at the Solana Conference in Portugal? Why is it in Portugal? What happens at a Solana crypto conference?

   28. DSDavid Sacks1:46

       I think there were thousands of people there and it was, I mean, easily. And, uh, I mean, it was kind of a madhouse and people were trying to get in last minute. Nobody could get in 'cause the conference was, like, totally sold out. It was a lot of crypto developers, a lot of people with projects.

   29. JCJason Calacanis2:00

       Mm-hmm.

   30. DSDavid Sacks2:01

       And why Portugal? I think because, um, there's a lot of conferences happening in Portugal right now because they are easier on the COVID restrictions than a lot of other countries. So, you can actually get in there and host a conference. Just, just to be clear.
2. 4:43 – 30:45

   Covering the censored segment from last week, how to value crypto projects and general investing, what to take away from the podcast

   1. JCJason Calacanis4:43

      do we want to just cover, um, the elephant in the room. There were ... The last episode, I think we should just get it out of the way 'cause it relates to Solana, there was ... We took something out of the last podcast so people understand. We have an agreement between the four of us, if there's something that somebody, uh, doesn't want in the pod after we record it, we'll take it out, 'cause we don't want anybody ... I mean, I think the philosophy, we haven't said this out loud, is we don't want anybody to say something they regret that could cause damage to other people or to themselves. So, if they wanna take something out that they said, that's fine with all of us. And, um, basically each of us has veto right on something. So, last week two people took their veto right on something and we took something out. You wanna explain our thinking on that, Sachs, and why we're reversing it?

   2. DSDavid Sacks5:27

      Yeah. Okay, so a few week- weeks ago on the pod there was an oblique reference between me and Chamath regarding Solana. And so, and so some internet theorists claimed that we were trying to engineer a pump and dump in Solana. Which, if you actually listen to what we said, um, it certainly is not a pump. Um, let me explain what it was. So, Craft is the beneficiary because we invest- we were the first investors in Multicoin. We were kind of like their seed investor, invested in their ... We put in something like 40% of the money for their special opportunity fund. They were one of the first investors in Solana, so we are the beneficiary of about a billion dollars of Solana. So, thank you Multicoin.... at some point- well, so- so they have started doing distributions. By the time I texted Chamath, they hadn't really started doing distributions. I didn't know how deep in liquid the market for Solana was. I just asked Chamath, like- I- I had heard that Chamath may have said something, that he was long Solana and wanted to accumulate. So I sent him a text saying, "Hey, are you interested? You know, I thought maybe we could do an OTC transaction at some point when we get our Solana." He basically- you know, we had a brief exchange about that, and then he mentioned it on the pod. That was the extent of it. What I didn't know at the time, but learned subsequently, is that the market for Solana is very deep, about three and a half billion notional is traded every day. So there's no need, even if we wanted to fully get out of our Solana position, which by the way, we don't even have, you know, multi-coin still has most of it. We- uh, it's not necessary to do an OTC transaction. We could just sell it.

   3. JCJason Calacanis7:01

      Explain what OTC transaction is.

   4. DSDavid Sacks7:03

      Oh, it just means over-the-counter. It just means that-

   5. JCJason Calacanis7:05

      Yeah.

   6. DSDavid Sacks7:05

      ... instead of going to like, uh, an exchange, you would deal with like a trading desk, or it could just be direct, like for me to Chamath. So that was basically the exchange. It- m- m- Chamath and I talked about it for maybe two minutes, and then it came up on the pod for 20 seconds. Uh, and some internet theorist basically clipped it and tried to accuse us of organizing a pump and dump. Well, obviously, if you're talking about selling something, it's not a pump. It's also not a- a dump either. So anyway, the reason why we said cut it out last week is because we didn't want to give oxygen to this stupid, like, conspiracy theory that somebody had invented on the internet with, like, no basis whatsoever, um, because you could spend all day trying to, like, shoot this stuff down. But then at the Solana conference, enough told me- enough people told me that this was becoming a meme that I thought it was worth addressing. And what- and look, what you have to understand with crypto is that for every cryptocurrency like Solana, there are haters, because they're invested in Ethereum-

   7. JCJason Calacanis8:03

      It's very tribal.

   8. DSDavid Sacks8:04

      ... or Cardano or whatever.

   9. JCJason Calacanis8:04

      Everybody's talking up their books.

   10. DSDavid Sacks8:06

       Yeah, exactly.

   11. JCJason Calacanis8:06

       There- there are pump and dumps-

   12. DSDavid Sacks8:08

       Right.

   13. JCJason Calacanis8:08

       ... and there are armies of anonymous Twitter accounts that will coordinate attacks and/or memes, et cetera.

   14. DSDavid Sacks8:15

       Right. So they're trying to spread the rumor that-

   15. JCJason Calacanis8:18

       Uh, okay.

   16. DSDavid Sacks8:18

       ... like VCs or big holders in Solana are gonna dump it, but the reality is that multi-coin has a large position, but they have LPs. They are solely distributing their positions to LPs. We will then-

   17. JCJason Calacanis8:29

       In the forms of the tokens. They're not selling them-

   18. DSDavid Sacks8:31

       Yes, exactly. Yeah.

   19. JCJason Calacanis8:31

       ... and giving you 10% ... They're giving you the tokens.

   20. DSDavid Sacks8:33

       Yeah.

   21. JCJason Calacanis8:33

       You get to decide what you do.

   22. DSDavid Sacks8:34

       Yes, and by the way, that's what we would like to do as well. We're currently working through those mechanics, because it's actually complicated for a VC firm to distribute, you know, in kind through tokens. But we're act-

   23. JCJason Calacanis8:44

       If you had to give them to your LPs subsequently ...

   24. DSDavid Sacks8:46

       That's what I would like to do. Exactly. So-

   25. JCJason Calacanis8:48

       Well, actually, people are doing that with Coinbase, so Coinbase is providing that as a service now, from my understanding.

   26. DSDavid Sacks8:52

       Right, so we're- it's- so we have to work through with our LPs-

   27. JCJason Calacanis8:55

       Yeah.

   28. DSDavid Sacks8:55

       ... but that's what we're gonna try to do, is distribute it in kind-

   29. JCJason Calacanis8:57

       (laughs)

   30. DSDavid Sacks8:57

       ... so everyone can make their own decision.
3. 30:45 – 42:06

   Rivian's $100B+ valuation, greatest CNBC hit of all time

   1. JCJason Calacanis30:45

      people thought I was dunking on Rivian yesterday and I said, "Listen, you know, when Tesla went public, people forget, their valuation was 1.5 billion." When they went-

   2. CPChamath Palihapitiya30:53

      1.7. 1.7.

   3. JCJason Calacanis30:53

      Okay. So 1.7 billion, uh, when they went public. Now, they already had thousands of Roadsters and they had already had the, uh, Model S out there.

   4. CPChamath Palihapitiya31:01

      No, they had 93, 93 million in revenue di- in year one.

   5. JCJason Calacanis31:04

      So this was dramatically different than what Rivian had. Rivian is being valued at, you know, whatever that is, 120 billion I think yesterday. Rivian has 17 billion in cash. Somebody asked me at the poker game last night what I value Rivian at. I said, "17 plus 3, 17 million in cash plus 3 billion, double roughly what Tesla's was." The market's hotter right now, whatever, but I put them at 20 billion and people were giving me a hard time about it. I said, "I think that's actually the realistic valuation for this company." And we are in a very dangerous moment in time right now where I think people are, whether it's meme stocks or crypto or NFTs, suspending disbelief, in some cases SPACS, uh, 'cause they're not all created equal, and certainly in private companies we're seeing this, where people are giving people a, an amount of credit which makes no logical sense and is getting further and further disconnected in, from reality. So as an investor, you have a choice. Either you ta- you have your fundamentals, which I am not gonna change my fundamentals. I'm gonna focus on the fundamentals that got me where I am and I'm not gonna e- be involved in $100 billion market cap company that hasn't launched a product yet, let alone $120 billion one. I'll stay focused on startups.

   6. DFDavid Friedberg32:12

      Yeah. But what you're saying is also important because you're highlighting how you value that company.

   7. JCJason Calacanis32:19

      Correct.

   8. DFDavid Friedberg32:19

      You individually said, "I think that company's worth some multiple of how many cars have been sold in the past." Elon sold, you know, thousands of cars, he was worth 1.7 billion these guys have sold. And other people are coming in and looking at this company and saying they've built facilities, they've built assembly lines, and they've got pre-orders and bookings for lots and lots of cars do- in the future. And clearly they've gone in and, you know, some people have gone in and seen these plants and seen these cars actually working. So, you know, it's really important to take note that your point of view is one point of view in a very diverse market with many points of view.

   9. JCJason Calacanis32:50

      Correct.

   10. DFDavid Friedberg32:50

       And everyone's gonna come into this market. And that's why, unless you individually as an investor have a strong point of view and can show that you can apply your unique insights to consistently beat the market-making decision, investment decisions like that, you're eventually gonna lose 'cause those other points of view will be a bigger, uh, view of the truth and you'll lose money. And that's why I say that. And that, by the way, that's why picking stocks is ultimately a loser's game unless you have some unique ability and insight. For most people historically and in an up market, everyone, everyone looks like a genius.

   11. JCJason Calacanis33:20

       You need to have that, you need to have an edge, right? You need to have an edge. And, and the public markets are hard to say that because people think of it as insider trading.

   12. DFDavid Friedberg33:22

       There's some, there's some unique competency, yeah, there's some unique competency that you need to bring to the table.

   13. JCJason Calacanis33:26

       Yes. 'Cause here, I mean, if we double-click on what you just said as the things that would be reasons to, in, bet on Rivian. Number one, they have 48,000 orders of pickup trucks against the F-150 which is now electric from Ford and a million Tesla Cybertrucks.

   14. DFDavid Friedberg33:39

       I don't know why you're, I don't know why you're arguing this, right? Like, you're just making a point that, that w- we don't have someone on the f- on the, on the, the panel right now, but someone else could come in and argue the other side.

   15. JCJason Calacanis33:46

       Okay, sorry, Chamath, yeah.

   16. CPChamath Palihapitiya33:47

       And, and I would just say this is the part of the conversation, to be honest, Jason, to give you feedback I don't like because Rivian, n- just in defense of Rivian for a second, what I have heard is that it's a, it's a well-engineered car, or truck rather. Um, they've done a very smart path to market, which is essentially to, you know, build these delivery trucks for Amazon that allowed them to even frankly, you know, be default alive-

   17. JCJason Calacanis34:15

       Sure.

   18. CPChamath Palihapitiya34:15

       ... versus, you know, to use a Paul Graham term, instead of default dead. I think the point that's more important here is that it doesn't affect you so let Rivian do well, you know? And this is part of the cycle-

   19. JCJason Calacanis34:28

       Oh, you're saying I shouldn't have an opinion publicly?

   20. CPChamath Palihapitiya34:29

       No, no, no, I'm just saying this is the part of the cycle that I don't understand where people legitimately have these zero sum points of view about companies. Um, and this is where I think, uh, Friedberg is more right than anybody else, which is there are, the market is the sum of all these collective points of view.

   21. JCJason Calacanis34:51

       Sure. Longs and shorts, yeah.

   22. CPChamath Palihapitiya34:51

       And I think it's fine to ha- I think it's fine to have one. I think it's a little superficial, your point of view, 'cause it's not really-

   23. JCJason Calacanis34:58

       How so?

   24. CPChamath Palihapitiya34:58

       ... you know, sitting on top of a model or anything else. And I think it's the same kind of superficiality that the TeslaQ guys had about Tesla for many years as well. It takes a long time, as somebody that does this every day, and I just wanna point this out. It takes an enormous amount of time, an enormous amount of work to be 55% right.

   25. JCJason Calacanis35:17

       Look, Chamath, I've invested in 350 companies. I meet with 2,000 companies a year.

   26. CPChamath Palihapitiya35:19

       No, in the public markets, Jason, it's different in the public markets.

   27. JCJason Calacanis35:21

       Listen, and my companies are going public now, so I take exception to what you're saying. I know a fraud when I see it. I've seen them before.

   28. CPChamath Palihapitiya35:26

       Oh, that's a really big statement.

   29. JCJason Calacanis35:28

       I'm not saying Rivian's at a fraud level yet.

   30. CPChamath Palihapitiya35:28

       That's not a fraud.
4. 42:06 – 1:01:34

   Inflation: reacting to the CPI number, problems with MMT, strategies to curb inflation

   1. JCJason Calacanis42:06

      Okay, uh, one thing that we are trying to all understand, uh, is inflation. The CPI, uh, has gone up 6.2% in October, the highest jump in 31 years since 1990. According to The Wall Street Journal, the fifth-largest straight month, fifth straight month of inflation above 5%. You know, somebody tweeted out, we'll pull it up here, uh, Denver Bitcoin put out a year-over-year commodity chart, uh, we can throw up on the screen. And then, uh, I think, Friedberg, you shared in the, um, chat, the average weekly retail prices around fertilizer. What are our thoughts, uh, on the nature of inflation and how that affects our, uh, investment...

   2. CPChamath Palihapitiya42:54

      I, I think it's persistent.

   3. JCJason Calacanis42:55

      Mm-hmm.

   4. CPChamath Palihapitiya42:55

      And, and the reason-

   5. JCJason Calacanis42:56

      It's persistent. Okay.

   6. CPChamath Palihapitiya42:56

      ... I think it's persistent is that...... there's a- the- the all of these things are intertwined and so, you know, if you just wanna bear with me for a second. Like, when- when the s- let's go- just go to the- the- the entry level economic job, right? So you're a barista at Starbucks or you work at McDonald's and you're making $17 to $20 an hour. What that does is it- it- it shifts labor, and eventually there are other people that are entering the workforce or, you know, may shift jobs, and essentially it just causes this leaky bucket effect where everybody else has to then accommodate itself. So, you know, you have a guy like, uh, you know, uh, you have a company like Amazon which is now gonna pay $25 or $30 to keep folks, right? Because otherwise they may say, "Oh, you know, if I make $15 or $16 an hour I'd rather work at McDonald's. It's simpler-"

   7. JCJason Calacanis43:40

      And free college.

   8. CPChamath Palihapitiya43:41

      "... it's not back-breaking work, blah, blah, blah." So then they start to, um, increase the amount that they pay. They increase their benefits and the like. Then they- I saw this thing this week, there's a crazy thing that's happening though, which is it's now pulling people from non-traditional job classes into those jobs. There are teachers that are leaving teaching to go work at an Amazon warehouse. There are firefighters that are quitting being a firefighter to go work at an Amazon warehouse, because you make the same or more, plus you have all of these other benefits and the job is structurally a lot easier, and so people are making different optimizations. And to that point, um, I think we talked about this, and Nick you can put it in the group chat, in Reddit as an example, there is more engagement in the subreddit around having a simple work life than there is now in WallStreetBets, right? So there's been a structural cultural change where people need to get paid more to do the same amount of work. And then at the same time, you have all of the- all of the supply side getting more expensive. Fertilizer makes corn more expensive. Lumber makes house prices more expensive. Chip prices makes the iPhone and cars more expensive. We're completely backlogged. You know, yesterday at poker, Sunny was showing us he bought a Tesla and the delivery period is-

   9. JCJason Calacanis45:02

      11 months.

   10. CPChamath Palihapitiya45:03

       ... Octo- October of 2022.

   11. JCJason Calacanis45:05

       Yeah. It's crazy.

   12. CPChamath Palihapitiya45:06

       It's fricking crazy. So I- I think that it's a- it's- this is the beginning of a persistence cycle.

   13. JCJason Calacanis45:12

       I think those are all like really valid points. The thing I'm seeing now is I think we've moved into, um, what I'll call a contagion phase of inflation, which is people are hearing about inflation. They're seeing it in some places, "My gas went up a little bit, my milk went up a little bit," whatever, and they're saying, "Well, I guess if everybody's raising prices, I need to raise the prices as well of whatever I provide in the world so I can just keep up with everybody else." And they're not looking at their inputs necessarily and saying, "I need to charge more," or, "That's the best business decision," they're just saying, "Everything's going up around me," and so they raise prices. I've literally had this happen three or four times in- I went to buy a car and they wanted 15K over sticker and I didn't buy it based on principle, but I'm sitting here going like, "Maybe I'm an idiot. Maybe I should just pay the 15K over sticker." What are your thoughts, Sax, on inflation and the contagion If I have any thoughts.

   14. DSDavid Sacks45:59

       I mean, my thoughts are, I told you guys like six months ago about this.

   15. JCJason Calacanis46:01

       Yeah.

   16. DSDavid Sacks46:02

       Can we just replay what I said on episode 32?

   17. JCJason Calacanis46:05

       (laughs) It's got his researchers in the background giving you... (laughs)

   18. CPChamath Palihapitiya46:08

       You've written down what you said-

   19. DSDavid Sacks46:09

       Yeah.

   20. JCJason Calacanis46:10

       Absolutely.

   21. CPChamath Palihapitiya46:11

       ... on per episode basis?

   22. JCJason Calacanis46:11

       No, this guy's in the fucking debate club. Stanford Debate Club over here.

   23. DSDavid Sacks46:14

       Some of us, when we make predictions, take them seriously so, you know-

   24. JCJason Calacanis46:17

       Oh, was that a dig at Professor Ice Cold Takes?

   25. DSDavid Sacks46:20

       (laughs)

   26. DFDavid Friedberg46:20

       I'll give you guys a link to a prediction that was made.

   27. DSDavid Sacks46:22

       Here's... Oh, I mean, I just want to replay the 20 seconds I said about this-

   28. JCJason Calacanis46:25

       Oh God, look at you.

   29. DSDavid Sacks46:25

       ... back in May.

   30. JCJason Calacanis46:26

       Here we go. The two Davids dueling again, just like in the group chat.
5. 1:01:34 – 1:08:35

   Xi Jinping becomes China's "Supreme Leader"

   1. JCJason Calacanis1:01:34

      Xi Jinping and his, he's gonna be speaking with Biden on Monday, so that's-

   2. CPChamath Palihapitiya1:01:37

      It's, it's done. He di- he ha- he got it done before his, his video ca- his Zoom with Biden.

   3. JCJason Calacanis1:01:43

      Uh, oh, yeah. So they're doing that. He's now the supreme leader. And apparently Xi, Xi Jinping hasn't left China in 18 months.

   4. CPChamath Palihapitiya1:01:46

      He's now the supreme leader.

   5. JCJason Calacanis1:01:48

      Explain what this means, uh, Chamath, from the story.

   6. CPChamath Palihapitiya1:01:50

      Um, I mean, I think the basic, the basic takeaway is that they've been working inside the body politic inside of China to basically reflect Xi on the same level as Mao and, um... And effectively, what this means is that it, it allows him to remain, um, the leader of China indefinitely. And so, um, there is no transition of power. Typically, what had happened was these r- there were these 10-year windows and, you know, you, you, you go, uh, Jiang Zemin, Hu Jintao, you know, 10-year cycles and then they pass the baton. But it now looks like we'll be living with Xi Jinping until, um, until, you know, he, he joins the afterworld. So, uh, he's ruler for life of China, basically.

   7. JCJason Calacanis1:02:33

      Crazy. I don't... What an incredible-

   8. DSDavid Sacks1:02:35

      I think that's exactly right.

   9. CPChamath Palihapitiya1:02:36

      What an incredible feat of political maneuvering. Without judging it, just to say how... what a complicated Byzantine political infrastructure he must have had to navigate. I don't know how he played this three-dimensional chess with all these people, the slow systematic dismantling of the old guard, placing all of his people in, then slowly moving towards this, this kind of recognition for him.

   10. JCJason Calacanis1:02:59

       He, he, you know what? He's gonna go down-

   11. DSDavid Sacks1:02:59

       You sound a little bit admiring, Chamath.

   12. CPChamath Palihapitiya1:03:01

       (laughs)

   13. JCJason Calacanis1:03:01

       Yeah, no, the dictator got his name for a reason. Somewhere, Donald Trump and Steve Bannon are like, "What did we do wrong? We were so close! January 6th, we almost... If Pence would've just played ball, sacks, you'd still be in power, huh? You, your guys dropped the ball."

   14. CPChamath Palihapitiya1:03:17

       (laughs)

   15. DFDavid Friedberg1:03:17

       And we wouldn't have inflation or he'd...

   16. JCJason Calacanis1:03:19

       Just think if Trump was leader for life.

   17. DSDavid Sacks1:03:21

       Gi- given how accurate... You know, Jason, given th- how accurate my predictions have been, you should have a little bit more respect for my, uh, political positions.

   18. CPChamath Palihapitiya1:03:28

       (laughs)

   19. JCJason Calacanis1:03:30

       (laughs)

   20. CPChamath Palihapitiya1:03:30

       What do you guys think happens now that Xi basically is ruler for life? You know, he... I think the Chinese term for it is historic figure, which is their parlance of saying-

   21. JCJason Calacanis1:03:39

       Yeah, that's what they call it.

   22. CPChamath Palihapitiya1:03:39

       ... you know, you're b- you're basically, um-

   23. JCJason Calacanis1:03:41

       You're a made man, basically.

   24. CPChamath Palihapitiya1:03:43

       You're a made man.

   25. JCJason Calacanis1:03:43

       You can't get whacked. Nobody can touch you. You're good for life. The end. Nobody can question you.

   26. CPChamath Palihapitiya1:03:49

       I mean, can you imagine Mao Zedong down... You know, Deng Xiaoping, and now Xi Jinping. Incredible, like he is at that level.

   27. JCJason Calacanis1:03:57

       Well, it means if you start a war, in a, in a serious military conflict, that nobody can question you, right? You're the supreme leader, so... It's sort of like Putin and MBS. Like, MBS can go kill a journalist and he's got nobody to answer to. It means he has nobody to answer to.

   28. CPChamath Palihapitiya1:04:13

       I mean, Mai, Mai, Mai, Mao Zedong initiated the revolution (laughs) and, you know, Deng Xiaoping was really the architect of free markets that has made China the, the economic powerhouse that it is today. Their internal reflection is Xi Jinping is on the same scale of that. Now, I mean, I c- I can't claim to know enough Chinese...

   29. JCJason Calacanis1:04:29

       But what is his vision for the future of China?

   30. DSDavid Sacks1:04:31

       Well, what, what... Yeah. What, what is the accomplishment that's gonna really put him in that league? And, and you'd have to say it's the annexation of Taiwan. I mean, that's the thing that he must be looking to do before, you know, his time runs out.
6. 1:08:35 – 1:24:44

   GE, Toshiba, and J&J break up into separate businesses: is this the end of the conglomerate? Insights from PayPal breaking off from eBay, what buybacks signal

   1. JCJason Calacanis1:08:35

      Uh, GE and Toshiba can't run their businesses so they're each separating into three separate companies.

   2. CPChamath Palihapitiya1:08:38

      Oh, let's talk about that. I mean-

   3. DSDavid Sacks1:08:40

      That's interesting actually.

   4. CPChamath Palihapitiya1:08:41

      And Johnson & Johnson.

   5. JCJason Calacanis1:08:42

      Yeah, we should tell you guys today.

   6. CPChamath Palihapitiya1:08:43

      I told you this today.

   7. JCJason Calacanis1:08:43

      All right. So on Tuesday, GE announced they were splitting into three separate companies; aviation, healthcare, and energy. Toshiba reported a similar plan.

   8. CPChamath Palihapitiya1:08:52

      Johnson & Johnson today.

   9. JCJason Calacanis1:08:53

      Johnson & Johnson was today. This is, um, in direct, uh, conflict with the consolidation and the creation of conglomerates and-

   10. DSDavid Sacks1:09:01

       Mm-hmm.

   11. DFDavid Friedberg1:09:02

       But not conglomerates. I think this is an important point, J-Cal. Um, you know, in the '80s and '90s it was cool to create conglomerates, meaning you would kind of stick businesses together that were-

   12. JCJason Calacanis1:09:10

       RJR? Yeah.

   13. DFDavid Friedberg1:09:11

       ... somewhat disparate, um, because you could financially engineer a way to do it that would juice shareholder returns, right? You could borrow money, add lots of scale, the cost of debt goes down. You could increase your debt load, et cetera. Um, and, you know, the, the challenge is, like, when you're scaling a business, you either need to grow your revenue organically or you need to acquire. And when you're acquiring, you're either acquiring horizontally or you're acquiring vertically, meaning you're kind of integrating your supply chain or you're integrating, um, or you're adding ancillary businesses that you can cross-sell, so you're either reducing your costs or increasing your cross-selling abilities, so there's some inherent synergy in the acquisition. The problem with conglomerates is there is very little synergy, meaning, like, when you acquire a new business, like an aviation business, it doesn't create synergy for your healthcare business. And, um, you know, there was always a rationalization that these managers of these big conglomerates had which was like, "Oh, well, we could do this and we could do that." At the end of the day, it was financial engineering where they simply kinda used debt to reduce, um, uh, you know, the cost of capital and increase the, uh, the shareholder returns. And now everyone's kinda waking up to the fact that you're actually decreasing value, because an investor that wants to own an aviation company doesn't also wanna own a healthcare company, so the investor doesn't buy those shares, and the investor that wants to own the healthcare company doesn't wanna own the aviation company, so they don't buy those shares. So the way to increase shareholder value is to actually split those businesses up and then the investors that wanna own the aviation business will pay more and the investors that wanna own the healthcare business will pay more, and the overall value of those two businesses goes up by having them be separate. And that's what the market's kinda waking up to and this is kind of a trend that's been going on for years now, you know, going back to kind of 2013, '14, um, where the market started to kind of rationalize some of these silly conglomerate business ideas and break them apart into more kind of, you know, targeted businesses that can actually-

Episode duration: 1:32:05